Handicapping the Next China Bubble

Are the country’s bonds the new asset du jour?

Following the Chinese central bank’s unexpected cut to banks’ reserve ratios last week, investors are again worrying about the fault lines in China’s economy. But for one asset class, that discordant note was music to the ears: Chinese bonds, which are on a tear.

After a brutal 18 months of Beijing-led “deleveraging,” high-rated bonds notched their best performance since late 2015 in the first quarter of this year. Yields on one year AAA-rated corporate debt are down nearly a full percentage point since December, having taken...